FLASH SALE! - "FINANCIAL MODELING COURSE BUNDLE AT 60% OFF" Enroll Now

Property Insurance

Updated on January 5, 2024
Article byWallstreetmojo Team
Edited byRaisa Ali
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Property Insurance?

Property insurance is a type of insurance that provides protection against risks affecting the property. It primarily provides property protection coverage. In other words, the insurer delivers financial reimbursement when property damage occurs. Its main purpose is to protect the policyholder’s property at the time of the loss.

Property insurance

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Property Insurance (wallstreetmojo.com)

The functionality includes the protection of the belongings of the property, like a home, factory, or commercial building. Typically, this comprises all home appliances, interiors, and other expensive items included while purchasing the policy. Depending on the policy’s specific terms, insurance coverage reimburses the full amount or the part in the case of property damage/ loss or destruction. 

Key Takeaways

  • Property insurance is a type of insurance that aids in defending the tangible assets of a person’s personal or commercial property from unforeseen events.
  • The three types of property insurance coverage are replacement cost, actual cash value, and extended replacement costs.
  • Examples include homeowners insurance, flood insurance, and earthquake insurance.
  • The distinction between property insurance and liability insurance is that the former deals with the exterior and interior contents of the home. In contrast, the latter offers protection against lawsuits brought by victims of injuries and property damage.

Property Insurance Explained

Property insurance is insurance coverage meant to protect an individual’s property. It is an agreement between the insurer and the insured against the damage, loss, or other mishappenings to the individual’s property. The insured/policyholder has the right to pay the premium amounts to the insurance company every month or annually, depending on the type of policy. In return, the insurer promises to protect and reimburse the amount in line with the policy at the time of damage to the property. 

The policy coverage differs depending on the type of ownership of the property. The coverage can be granted on the exterior and interior structure or only the interior design of the building or personal property. People staying in the rented property are given coverage only on the interior items. 

Coverage Options

The three types of property insurance coverage include: 

  • Replacement cost: Irrespective of depreciation or appreciation, replacement cost coverage covers the expense of property repair or replacement. Therefore, instead of actual cash value, premiums for this insurance are calculated based on replacement cost values.
  • Actual cash value: Depreciation is subtracted from replacement cost under actual cash value coverage.
  • Extended replacement costs: If construction prices have escalated, the extended replacement cost will pay more than the coverage cap. Typically, this won’t go beyond 25% of the allowed limit. The limit on an insurance policy is the highest benefit amount that the insurance provider will provide for a certain circumstance or occurrence.

Types

Let us look at different types of property insurance to understand the concept better.

1. Homeowners Insurance 

It offers financial security to the house against damage from events like theft and catastrophes. Additionally, it provides coverage on belongings and liability coverage.  

2. Condo Insurance

It provides financial protection against damage and loss to the condominium units owned by the condo homeowners. Generally, it does not cover the exterior portion of the building but rather the home’s interior belongings, including walls, floors, and internal equipment such as electronic appliances, furniture, clothes, etc. 

3. Landlord Insurance

It is a complete service that provides financial security to those who rent out their properties. In addition, the landlord’s interests are considered to protect the estate or property and its belongings against unfortunate events.

4. Renters Insurance

It helps the owners/renters rent the property to other people. It does not cover the whole structure of the property but provides additional protection against the personal belongings of the property. 

5. Flood Insurance

Its application adds a layer of security by providing coverage for losses caused by floods due to prolonged or heavy rainfall, snow, high tides, thunderstorms, monsoon rainfalls, clogged drainage systems, or dam collapse.

Examples

Let’s look into some of the property insurance examples to understand the concept better:

Example #1

Consider the case of high-value home policy. A high-value home is normally one that is valued above $750,000, while certain insurance plans may only cover homes with a $1 million or higher value.

Mr. A received the high-value home policy, which included $20,000 in coverage for the breakage of antiques, fine art, and collectibles, as well as blanket jewelry coverage up to $10,000 per piece.

Example #2

Homeowner’s insurance can cover dog bites, given the existence of exclusions. For example, various home insurance providers won’t cover dog-bite claims if the policyholder has a dog that is a type mentioned on the banned dog breed list,
Pit bulls, Rottweilers, and Doberman Pinschers are three breeds of dogs frequently appearing on lists of prohibited breeds.

Assume Mr.A has such coverage, and if his pet dog bit someone, then the insurance will cover the medical bills, given the pet dog is not a type mentioned in the banned dog breed list.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Benefits

Let’s look into some of the benefits:

  • It helps personal or commercial property during the time of mishappening. For example, it covers the damages from natural calamities, loss of assets, etc.
  • To safeguard the belongings of the house, office, or business property, that includes all furniture, gadgets, equipment, and some personal belongings, the property coverage refunds the expenses of the belongings either in full or in part, depending on the specific policy guidelines, in the case of property loss or the damage. 
  • The liability coverage element helps save time and money against disputes and lawsuits. 

Difference Between Property Insurance And Life Insurance

Property insurance is a type of insurance under which protection is provided for the damages/ losses incurred on the property of an individual. In contrast, a life insurance policy is an insurance policy under which protection coverage is provided on the death of an individual. 

Property InsuranceLife Insurance
Involves property protection coverageInvolves life cover
Example: Natural disaster insurance and fire insuranceExample: Term life insurance and whole life insurance

The premium on the property insurance is normally paid annually, and the coverage is paid depending on the multiple events. In the case of a life insurance policy, the premium is paid regularly (monthly/ yearly/lump sum) till the time of death or up to a certain time, and the beneficiary is paid once during the time of the death of the life insurance policyholder. 

Property Insurance vs Liability Insurance

Property insurance includes coverage for the floor, furniture, walls, appliances, gadgets, etc. At the same time, liability insurance includes coverage for the damages caused to friends, relatives, or other entities due to the home-based accident. In such cases, a representative settles the claim, and the insurance amount is reimbursed accordingly. 

Property InsuranceLiability Insurance
It gives the property protection against all the risks  It offers protection against lawsuits brought by victims of injuries and property damage
Examples: Homeowners insurance, renters insurance, flood insurance, and earthquake insuranceExamples: Product liability insurance, indemnity insurance, and employer’s liability & workers’ compensation

Frequently Asked Questions (FAQs)

What is commercial property insurance?

It is insurance coverage especially taken for commercial property / or business purposes. It covers the losses that might happen due to various reasons such as tsunamis, earthquakes, theft, flood, etc.

What is personal property insurance?

The insurance coverage, also known as Coverage C, is taken for the personal property that includes all the inside belongings of the home, such as furniture, walls, floor, appliances, gadgets, etc. In certain cases, the replacement cost value is payable, and in certain cases, the actual cash value is payable at the time of loss/ damage. 

What is property damage liability insurance?

Suppose the “property damage liability insurance holder” causes an accident and causes property damage. In that case, the insurance will pay for repairs to the other party’s automobile or property. Additionally, it will cover the cost of clearing away any post-accident material, including trees that have been damaged and signage.

This article has been a guide to what is Property Insurance. We explain its types, examples, benefits, and comparison with life and liability insurance. You may also find some useful articles here –